Britain’s tax authority plans to ditch its levy on Bitcoin trading only days after the collapse of Mt Gox, one of the virtual currency’s leading exchanges, losing almost $500m of customer deposits.

The UK’s welcoming approach to Bitcoin contrasts with the approach of other countries, amid concerns about its use for tax evasion and money laundering as well as its notoriety for wide fluctuations in value. MoreIn a meeting with a group of UK traders last week, HM Revenue & Customs said it would not charge the 20 per cent VAT tax on trades, which entrepreneurs had complained made their businesses globally uncompetitive. HMRC went a step further, saying it would not charge the tax on their margins either.

The ruling sidesteps the thorny question of whether to class Bitcoin as a currency, but effectively treats it as such, and bases its policy on the EU law that exempts payments and transfers of “negotiable instruments” from tax.

Governments worldwide have wrestled with the conundrum of how to deal with virtual currencies, as businesses hoping to profit from a small but growing economy have lobbied for regulation that would allow them to flourish.

Singapore has issued tax guidelines for Bitcoin, while an internal US watchdog has criticised the Internal Revenue Service for not doing so.

“If they had added VAT that would have destroyed us, there would have been no point in starting this business at all,” said Jonathan Harrison, who has a start-up working on bringing Bitcoin ATM machines to the UK. “It’s great that the UK authorities are seeing Bitcoin as an innovative technology that can help the economy.”

The European Banking Authority has warned that consumers are not protected by any refund rights under EU law when using virtual currencies for commercial transactions. China has banned its banks from handling Bitcoin, while Russia and Vietnam have declared transactions illegal.

The decision comes as the Bitcoin Foundation, the non-profit advocacy group, told the Financial Times it would redomicile to the UK this spring from the US. Some Bitcoin users see the UK as a more favourable jurisdiction in the wake of Edward Snowden’s revelations about the US government spying on the internet as well as centre of a buoyant “fin-tech” industry.

The Bitcoin Foundation, set up to develop the software that runs the currency and to lobby governments and regulators, is searching for staff and office space in London, according to board executive director Jon Matonis.Last year HMRC had classed Bitcoin as a voucher, charging VAT on the value of the coin itself. Businesses in the UK had protested against that treatment, saying it would drive customers abroad to countries where no charge was levied. HMRC later withdrew that guidance after meetings over the course of last year.

Other taxes, such as corporation tax, would still apply. The policy applies to all business that buy, sell or exchange Bitcoin.

The total value of all Bitcoins in circulation is $6.9bn, up from $150m a year ago, according to BlockChain.info. The price of Bitcoin stood at $555 on Sunday, according to the BTC-E exchange, down from a peak of $1,242 in December.

The tax authority said: “HMRC has been working closely with the Bitcoin industry on the tax treatment of trading in Bitcoins and commission. We will be issuing guidance shortly.” Simon Dixon at Bank to the Future, which helps start-ups to raise funding and has 10 working on Bitcoin projects, said: “The Bitcoin start-up community is booming. If we get favourable regulations that will build a lot of interest from start-ups around the world to come and base themselves in London.”

Britain’s tax authority plans to ditch its levy on Bitcoin trading only days after the collapse of Mt Gox, one of the virtual currency’s leading exchanges, losing almost $500m of customer deposits.

The UK’s welcoming approach to Bitcoin contrasts with the approach of other countries, amid concerns about its use for tax evasion and money laundering as well as its notoriety for wide fluctuations in value. MoreIn a meeting with a group of UK traders last week, HM Revenue & Customs said it would not charge the 20 per cent VAT tax on trades, which entrepreneurs had complained made their businesses globally uncompetitive. HMRC went a step further, saying it would not charge the tax on their margins either.

The ruling sidesteps the thorny question of whether to class Bitcoin as a currency, but effectively treats it as such, and bases its policy on the EU law that exempts payments and transfers of “negotiable instruments” from tax.

Governments worldwide have wrestled with the conundrum of how to deal with virtual currencies, as businesses hoping to profit from a small but growing economy have lobbied for regulation that would allow them to flourish.

Singapore has issued tax guidelines for Bitcoin, while an internal US watchdog has criticised the Internal Revenue Service for not doing so.

“If they had added VAT that would have destroyed us, there would have been no point in starting this business at all,” said Jonathan Harrison, who has a start-up working on bringing Bitcoin ATM machines to the UK. “It’s great that the UK authorities are seeing Bitcoin as an innovative technology that can help the economy.”

The European Banking Authority has warned that consumers are not protected by any refund rights under EU law when using virtual currencies for commercial transactions. China has banned its banks from handling Bitcoin, while Russia and Vietnam have declared transactions illegal.

The decision comes as the Bitcoin Foundation, the non-profit advocacy group, told the Financial Times it would redomicile to the UK this spring from the US. Some Bitcoin users see the UK as a more favourable jurisdiction in the wake of Edward Snowden’s revelations about the US government spying on the internet as well as centre of a buoyant “fin-tech” industry.

The Bitcoin Foundation, set up to develop the software that runs the currency and to lobby governments and regulators, is searching for staff and office space in London, according to board executive director Jon Matonis.Last year HMRC had classed Bitcoin as a voucher, charging VAT on the value of the coin itself. Businesses in the UK had protested against that treatment, saying it would drive customers abroad to countries where no charge was levied. HMRC later withdrew that guidance after meetings over the course of last year.

Other taxes, such as corporation tax, would still apply. The policy applies to all business that buy, sell or exchange Bitcoin.

The total value of all Bitcoins in circulation is $6.9bn, up from $150m a year ago, according to BlockChain.info. The price of Bitcoin stood at $555 on Sunday, according to the BTC-E exchange, down from a peak of $1,242 in December.

The tax authority said: “HMRC has been working closely with the Bitcoin industry on the tax treatment of trading in Bitcoins and commission. We will be issuing guidance shortly.” Simon Dixon at Bank to the Future, which helps start-ups to raise funding and has 10 working on Bitcoin projects, said: “The Bitcoin start-up community is booming. If we get favourable regulations that will build a lot of interest from start-ups around the world to come and base themselves in London.”